Stocks closed in the red on Monday, ending a five-day winning streak. More significantly, the S&P 500 moved below 2,000 after hitting this key psychological level on Mar 4 and 7. This is probably the first major challenge that markets have run into since this recovery. It leads to the view that markets may simply experience higher volatility in the days ahead or a major selloff. 

In such a scenario, picking value stocks that have a low beta from the S&P 500 might be a prudent option. Beta measures the tendency of a stock’s performance to respond to market swings. Low correlation stocks provide protection during turbulent times as they are less prone to day-to-day fluctuations.

Mid-February Surge on Crude’s Rebound

A section of market watchers believe that markets have recovered considerably from the lows experienced in early February. The losses suffered on Monday are only the events of a single trading day. Indeed, the Dow gained 6.6% from the low it hit on Feb 11 while the S&P 500 increased nearly 7% despite Monday’s losses.

February’s gains were powered by a resurgence in oil prices. Prices gained due to two major factors, talks of production controls among major oil exporters and favorable crude data. During the fourth week of February, WTI crude increased 10.6%, witnessing its highest gain since August.

Resistance Ahead

Due to these developments, Nymex crude surged 45% by Mar 7 from the Feb 11 low. Iron ore gained 19% even on Mar 8 while Nymex crude lost 3.7% to close at $36.50. Such substantial gains are hard to ignore. However, several analysts believe that stocks could not test key resistance levels.

The three-week long surge had begun with a recovery and transformed into a period marked by short covering and purchases of cheap stocks offering good value. But stocks could face difficult times now.

According to Asbury Research, the 1994 to 2023 band presents a series of resistance points for buyers. It is here that markets must decide whether this is the beginning of a midterm incline or the start of a short recovery within a longer decline over the intermediate term.